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Real Estate Board of New York Testimony before the New York City Council Subcommittee on Zoning and Franchises Mandatory Inclusionary Housing Text Amendment

February 9, 2016

The Real Estate Board of New York (REBNY) is a trade association with over 17,000 owners, brokers, managers, lenders and other real estate professionals active in New York.

REBNY strongly supports the Mayor’s Five Borough, Ten Year Housing Plan to preserve and create more than 200,000 units of affordable housing. More specifically we support the Mandatory Inclusionary Housing (MIH) zoning text change that we believe is a critical component of that plan.

MIH zoning text amendment is a paradigm shift in the City’s land use policy. As such we should proceed cautiously, recognizing it is easier to make the rules more restrictive than less.

The City should be commended for the scope and depth of the market and financial analysis that was done to support MIH. Its conclusion was that such a program can support housing production and promote neighborhood economic diversity for a range of building types and in a range of conditions. The proposal seeks to establish a consistent and predictable approach with sufficient flexibility to reach households at low and moderate incomes in a variety of market conditions.

The threshold question for us with MIH is whether the program makes economic sense as structured and as applied both to City initiated rezonings and private applications.

The foundational aspects of the analysis supporting the program’s economic feasibility are land use actions to promote increased housing and the availability of public subsidies, particularly 421a and the Low Income Housing Tax Credit.

Beginning with East New York, the MIH text will be mapped in this City-sponsored rezoning, thus mandating affordable housing as a requirement for all new residential development there.

The City initiated rezoning locations appear to be in areas that have seen very little, if any, new private sector residential development, with a substantial density increase. Nevertheless, in some areas, despite the increased bulk and the availability of tax exemption benefits, new residential development is not generally feasible without public subsidy. In short, the program attempts to combine the benefits of increased bulk, tax exemption benefits and public subsidies in a way that makes economic sense and could actually encourage, not thwart, new housing production.

However, there is concern with how the program would be applied to and impact private applications. Here are some of our thoughts and concerns:

(1) Given different market conditions throughout the City, builders should be permitted to choose the Mandatory Inclusionary Housing option that works best for the specific project. Compared to City rezonings, private applications may not be granted the larger density increases contained in a City-sponsored action. This may be insufficient to offset the economic cost of the mandatory inclusionary housing option dictated through the public review process. In these circumstances, especially, builders should have MIH options to select from.

(2) There is concern that the public subsidy available to address a financial gap in new housing production in City rezoned areas would not be forth coming for areas rezoned through private applications.

(3) There is concern that in some neighborhoods market conditions would support a private rezoning application, even if it does not have any increase in bulk comparable to a City rezoning, but only with 25 percent affordable. The slight increase in rent for 30 percent of the affordable units cannot be offset by the lost revenue from the lower percentage (70 percent) of market rate units.

(4) More generally, there is concern that the 30 percent mandatory inclusionary housing option at an average of 80 percent AMI reduces the economic value of the 30 percent 421a benefit so as to significantly diminish the subsidy value of the benefit, thus making this MIH option problematic.

(5) Similarly, in addition to the availability of public subsidy to make projects economically feasible, the program proposes hardship relief at the BSA as another way to mitigate the impact of the mandatory requirement. However, owners are concerned that as the applicant of a rezoning they may not be approved from such relief since the hardship was self-imposed by the rezoning they initiated. A related BSA concern is what is needed to demonstrate hardship.

(6) The City should determine the appropriate threshold, if any, for mandatory affordable housing when a private application advances other planning objectives, such as transit improvements, landmark preservation, and theater and other cultural bonuses.

(7) There are times when DCP asks a private applicant to include adjacent properties under other ownership as part of their action. How would this additional cost and responsibility be factored in to the affordable requirement?

(8) The threshold for projects to be permitted to pay into a fund to meet its affordability requirements should be 50 units or 50,000 square feet.

We welcome this opportunity to support the Adminstration’s bold and ambitious housing plan, and we respectfully ask that any amendments to the plan consider and preserve the financial viability of the program.